GLOBAL FINANCIAL MELTDOWN AND ITS EFFECTS ON NIGERIA BANKING SECTOR (A CASE STUDY

OF INTERCONTINENTAL BANK

AND FIRST BANK PLC)

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Without being told every one whether educated or not would have understand by now that something is terribly wrong with the economy of the nations of the world, the center in the media of every nation both national and international. The pertinent questions one may ask are, what is it all about? How did it come about? How are we affected as an individual and as a nation? How is one nation and the world responding to it? How can we find our way out of the problem caused by the crisis?

Economic meltdown is a situation where the economic activities of a nation is totally paralyzed and recessed.

According to Onuigbo (2007) economic meltdown could be called economic “go slow” just as traffic I am bring vehicle movement to a half, so does economic meltdown literally bring an economy to a stop. The resultant effects are many.

Broadly defined, a recession as a downturn in a nation economic activity. The consequences typically include increased unemployment, decreased consumer and business spending and declining stock prices.

Improvement in technology has brought the entire world into a “global-village” this is the reason for the fast spread of the current global economic meltdown across the nations of the world.

ORIGIN OF THE CURRENT GLOBAL ECONOMIC MELTDOWN

There is a wide view that the current crunch all over the world has its root from the mortgage market crisis in the united state of America (U.S.A) between 2005 and 2006, the mortgage market in the united state was highly fulled by what they refer to a “sub-prime lending” sub-prime lending is the practice of lending, mainly in the form of mortgages for the purpose of residence to borrowers who do not meet the usual criteria of borrowing unfortunately, bad debt become rampant due to borrowers inability to repay the loan, thus lead banks rite finding a possible means of reducing their leverage ratio by raising more money.

As a stock brokers found out that the bad loans the banks and other lending institutions were carrying, they pulled their money from the banks. And the markets become worse. This has since frozen the American financial system and like a wide fine spread to the four corners of the earth.

The effects of this ongoing global economic crisis on the Nigerian economy especially the banking sector cannot be over emphasized. The current situation of our economy is a wind that blows no one good, in his address to the ministers at the first federal executive council meeting in 2009, late president Yar’Adua overtly admitted that the impact of global financial meltdown had already been notice in Nigeria (internal source).

The effect has spread to Europe, Japan, Asia, Africa, Latin, America and other parts of the world. An estimated US $1.7 trillion in bail out funds has already been committed but we are yet to see the end of the tunnel not to talk of any light in it. According to a report the world stands in need of a staggering US $4 trillion to fully resolve this crisis. Both developed and developing countries around the world have been worried over the effect of the global financial crisis on their local economics.

Hence is the current situation. At present most of the revenue funds of the Nigeria comes from the oil. Nigeria sells its oil to the west and uses that money to drop its existence. Nigeria does not generate independence revenue to maintain the Nigeria economy as a result of the financial meltdown.

1.2     STATEMENT OF THE PROBLEM

From the background of the study above, it is evidence that the ongoing financial crisis has really affected our banking sector and the economy generally. Before now, the prices of oil continue to dip from a high of more than $140 per barrel mid year of 2008 to 40, which is below of what is budgeted in the year budget.

The global economic environment is changing turn oil in the global financial market is deepening into recession across the world our recent gains in economic growth and macro economic stability may be unreaged by sustained fall in oil prices.

Nigeria is a single product economy, so whether money we get as a nation is determined by the price of oil so it very clear that this is an austerity priority the implication for banking industry is that the liquidity will be greatly impacted.

1.3 PURPOSE OF THE STUDY

The purpose of this research is to evaluate the effect of global financial crisis on the banking sector and the economy at large.

For proper evaluation and the effect especially the study is to examine

1.          The origin of global financial crisis

2.          The causes of global financial crisis

3.     The level of its effect on our economy specially the banking sector

4.     The individual effect in terms of employment of their financial crisis.

1.4     SIGNIFICANCE OF THE STUDY

The essence or important of this research is to explore the effect of the current global financial crisis and to also proffer an everlasting solution to it in form of recommendations.

        At the end of this research, both those in government and those in private organization (banking sector) will benefit from it because many suggestion will be made that if well followed, will remedy the effect of this financial crisis in their various fields.

1.5     RESEARCH QUESTIONS

For proper investigation of the subject matter, the following research questions are used to guide the researcher

1.     What is the beginning of this financial crisis?

2.     What are the causes of this global financial crisis?

3.     What are the effect on the banking sector of our economy?

4.     What are the individual effects of this financial crisis based in the employment and others and solutions?

1.6     SCOPE OF THE STUDY

The research is meant to deal with the effect of global financial crisis on Nigeria especially the banking sector of the economy. Be that as it may, some selected banks in Nigeria will guide us to achieve that.

This study is limited to intercontinental bank plc and First bank all operating in Nigeria banking sector of the economy.

1.7     DEFINITION OF TERMS

In the process of writing this research some technical terms were used for simplicity, those terms that may hamper the readers understanding of the report are explained, as they are meant to be understood by the reader meltdown a serious accident in which the control part of a nuclear reactor mew’s causing harmful radiation to escape

RECESSION- A difficult time for the economy of a country than usual and more people are unemployed.

MORTGAGE – A legal agreement by which a bank or similar organization lends you money to buy a house etc and you pay the money back over a particular number of years.